1.1 The Malaysian Audit Oversight Board(AOB) is established under Part IIIA of the Securities Commission Act 1993 (SCA) which came into force on 1st April 2010 to promote and develop an effective audit oversight framework and to promote confidence in the quality and reliability of audited financial statements in Malaysia. Establishment of AOB as a means to strengthen the independent oversight of auditors which are as follows:
To have an oversight system independent of auditors
To ensure only fit and proper persons allowed to audit financial statements
To modernize appeal process
To have in place a broad range of sanctions
1.2 The chronology of events the establishment of AOB is as follows:
September to October 2007
YAB PM announced the budget 2008 - "Government will establish a Public Companies Accounting Oversight Board under the auspices of the SC".
Consultations were held with the industry groups and regulators.
January to April 2008
Securities Commission (SC) establishes High Level Task Force that met six times to deliberate on appropriate audit oversight framework for Malaysia.
December 2009
Securities Commission (Amendment) Bill 2009 which contains the establishment and functions of the AOB passed in both Houses and Parliament
1st April 2010
Part IIIA SC (Amendment) Act 2010 came into force.
1.3 AOB is responsible to implement policies and programmes to ensure an effective audit oversight system in Malaysia. Besides that, direct the Malaysian Institute of Accountants (MIA) to establish or adopt, or by way of both, the auditing and ethical standards to be applied by registered auditors. AOB is also responsible to register or recognize auditors of public interest entities (PIEs) that responsible to audit the entities. It is also conduct inquiries and impose appropriate sanctions against registered auditors who fail to comply with auditing and ethical standards. Conduct inspections and monitor programmes on registered auditors to assess the degree of compliance of auditing and ethical standards. AOB also cooperate with relevant authorities in formulating and implementing strategies for enhancing standards of financial disclosures of PIEs. In order to enhance the standing of the auditing profession in Malaysia and internationally AOB liaise and cooperate with oversight bodies outside Malaysia. Auditors must to determine necessary or appropriate to promote high professional standards of auditors and to improve the quality of audit services and perform such other duties or functions as the AOB determined. In accordance with Section 31V(1) of Part IIIA of the SCA, the registered audit firm and auditor will be subject to inspections by the AOB. AOB will assess the degree of compliance with the auditing and ethical standards by the auditor and the quality of the audit reports prepared by the auditor relating to the audited financial statements of PIEs.
1.4 We need an AOB because to oversee the public of audit companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports. AOB helps the auditor to set the standard to audit financial statements and internal controls. Besides that, AOB will help the auditors by set up the standard that must follow the standards so that the auditor do not breach any standards and will be penalized if they failure to meet standard. AOB is developed to ensure that the financial statements are reliable and reflect true and fair view financial position of the company and compliance with International Auditing Standards [1] . Furthermore, AOB will be able to assess the ability of audit firms to deliver quality of audits and the system quality control and risk management practices that they put in place will ensure high audit standards [2] . If the case of audit deficiencies, AOB expects to rectify them. Where serious non-compliance is discovered appropriate sanctions will be imposed to protect public interest and such rectification would lead to better quality audits [3] .
1.5 After more than two years has been set up, Audit Oversight Board (AOB) has formed an official collaboration in audit oversight with the Japan Financial Services Authority and the Certified Public Accountants Audit Oversight Board on 3rd October 2012. [4] Furthermore, AOB also has been admitted as a member of the International Forum of Independent Audit Regulators (IFIAR) and being the second country from Asean to be joined and obtained the member on September 13, 2010. [5]
1.6 The first sanction of AOB on July 12,2012, the board reprimanded Alvin Tee Guan Pian, the senior partner of accounting firm UHY Malaysia. The AOB briefly describe the breach which he failure to comply with the relevant requirements of the recognized auditing standards in Malaysia i.e. the International Standards on Auditing. The firm's explanation is that there is a clash of opinions on whether it was right to believe that the PIE was a going concern back when its 2010 accounts were audited. As for consequences of this case, AOB came up with the annual reports for 2010 and 2011 which talk about issues concerning the going concern assumption that were uncovered when the board reviewed the audit work of some firms. [6] Five audit firms run afoul of board, The Star Online, 2011, where the five audit firms are failed to register with AOB and they had accepted appointment with PIEs as auditors. For the reason of that, the three from big four firms are the earliest to be registered which are Ernst & Young, PriceWaterHouseCoopers (PWC) registered on April 1, 2010 and followed by KPMG on April 9. In Annual Report 2011 released on April 25, 2012 the board announced that it had conducted inspections of 17 audit firms last year, compared with six in 2010. The listed companies audited by these firms accounted for 98% of the total market capitalization of the companies on Bursa Malaysia. As the end of 2011, 75 firms have registered with the AOB which began operations in April 2010. [7]
1.7
